Tuesday, April 01, 2014Last Update: 6:26 AM PT

Venture Capitalists 1, Neuroscience Group 0

SAN FRANCISCO (CN) - A federal judge dismissed a neuroscience company's lawsuit claiming that venture capitalists tried to abscond with its intellectual property and cheat it of payments for a new heart drug. In its lawsuit, the Florey Institute of Neuroscience and Mental Health claimed the consortium of venture capitalists misappropriated its intellectual property and knowhow through an entity they created, Corthera Inc., and by selling the rights to its relaxin drug to Novartis. Named as defendants were Kleiner Perkins Caufield & Byers, Domain Associates LLC, KPCB Holdings Inc., Sears Capital Management, Lowell Sears, Caxton Advantage Venture Partners LP, Stanley E. Abel, Thomas G. Wiggins, and Peter M. Breining. Corthera and Novartis were not named as defendants. Florey said in its complaint that it had been doing research on peptides such as relaxin for more than 30 years and is responsible for much of what is known today about relaxin. Florey said it had an agreement with Corthera under which Florey would receive 2 percent of net sales from the proceeds of sales of relaxin-related licensed products, as well as any drug development milestone payments from partnering deals. Florey claimed that defendants sold the rights to its relaxin drug to Novartis without authorization, and that payments from Novartis went directly to Corthera's shareholders, bypassing the Florey Institute. Florey said it learned this through a press release stating that Novartis had agreed to purchase Corthera, leaving Corthera as a wholly owned subsidiary of Novartis. The press release allegedly stated that Novartis purchased Corthera to acquire the rights to Florey's relaxin intellectual property and that Corthera's shareholders would be paid up to $500 million in milestone payments related to relaxin commercialization. U.S. District Judge Samuel Conti dismissed most of Florey's claims on Sept. 26, 2013, finding that the shareholders themselves did not dispose of Florey's intellectual property, and that if anyone misappropriated the intellectual property, it seemed to be Corthera or Novartis. Florey filed an amended complaint asserting conversion of intellectual property, conversion of proceeds owed, misappropriation, and unjust enrichment under quasi-contract. Conti dismissed the claims on March 26. Florey failed to show that the shareholders transferred or assigned its patents and knowhow to Novartis, Conti wrote. The judge found that third-party press releases are not convincing enough, on their own, to show that Novartis acquired any of Corthera's rights as a result of the merger. Florey did not "indicate how defendants had anything to do with the conversion of plaintiff's intellectual property rights. Plaintiff continues to rely on defendants' alleged role in the Novartis merger. Plaintiff has alleged nothing concerning its intellectual property distinct from the merger, so it appears that nothing else in plaintiff's [First Amended Complaint] could support a conversion of intellectual property claim," Conti wrote in the 28-page ruling. Conti also found that Florey did not adequately plead that there is a specific sum to which it is entitled under its conversion of proceeds owed claim, and pointed out that claims against Corthera or Novartis would be more plausible, "but as pled here it appears to be an attempt to avoid those avenues for repayment." As to Florey's claim for unjust enrichment, "the availability of legal remedies against other parties - Corthera or Novartis - counsels against the Court's application of an equitable remedy against defendants who are, in most cases, protected by the corporate form," Conti wrote. Florey's misappropriation claim failed, as it merely restated its conversion claims.